Fed plans to buy mortgages

The Federal Reserve recently announced it plans to buy mortgage securities from lenders as well as Fannie Mae and Freddie Mac with funds from other types of loans. The Fed is trying to reduce the number of securities purchased by investors to support their price and push down yields. The anticipated result is lower mortgage rates for borrowers.

In addition, the Federal Reserve also plans to use money from the Fannie Mae and Freddie Mac debt to buy mortgage-backed securities. The Fed will use debt issued by Fannie Mae or Freddie Mac, or bonds insured by the government-sponsored entities, to buy the securities. After the housing bubble burst, the Fed reported owning $885 billion worth of mortgage-backed securities, and is now focusing on buying government bonds over mortgage debt, CNBC reported.

The Wall Street Journal reported that the Fed will not increase its portfolio of mortgage bonds. Rather, it will take the money from the mature bonds in the existing portfolio and reinvest the funds into other mortgage-backed securities.

"This is a way of saying, 'We are going to also foster low mortgage rates, and if the market isn't interested in buying them, well we will buy them,'" Keith Gumbinger, vice president at financial publisher HSH Associates, told the news source. 

More News